Property boom spurs spending spree

Eric Johnston

SURGING property prices appear to be driving a spending spree in Australia, with home owners taking out bigger mortgages to help fund the purchase of big-ticket items, from new cars to holidays.

While many struggle to get a foothold in the housing market, home owners buoyed by double-digit rises in property prices are increasingly using their homes as ATMs.

It has rekindled memories of the early 1990s when banks encouraged home owners to borrow for a holiday or new car and add it to their mortgage.

But regulators and economists fear that the borrowing binge could leave home owners vulnerable to rising interest rates, while any sudden reversal of housing prices might tip many into negative equity - when the size of the loan exceeds the value of the property.

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Before this week's 25-basis point rise in interest rates, Reserve Bank governor Glenn Stevens took the unusual step of appearing on breakfast television to say that property prices were ''getting quite high'' and warn of the dangers of people taking on too much mortgage debt.

Mortgage refinancing hit a record high of 37.2 per cent of all home loans arranged in March.

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Fujitsu Consulting executive director Martin North said there had been a significant jump in the proportion of those refinancing to help finance acquisitions ranging from shares to big-ticket consumer items.

''That's one of the reasons why the RBA is twitchy about where house prices and the housing market is going,'' Mr North said.

Figures from RP Data show house prices in capital cities have risen by 12.7 per cent over the past year.

The top-performing cities in recent months have been Melbourne (5.4 per cent), Darwin (4.2 per cent) and Sydney (3.8 per cent).

Coinciding with these figures, new car sales hit a monthly record in March, led by consumer-focused sports utilities and luxury vehicles.

The latest figures compiled by VFACTS show sales of 95,744 new cars in March, up 25 per cent on the same time last year.

Meanwhile, the high Australian dollar is also encouraging Australians to travel overseas in record numbers.

After taking out bigger loans against their property for much of the past decade, US home owners were badly caught out in the belief that house prices would continue rising.

However, the collapse of the housing market there left many with mortgages that were substantially higher than the value of their homes.

The median Australian house price is now $485,000 in capital cities, while the median unit price is about $400,000.

Rather than paying down debt when interest rates were low, households have been taking on more debt.

The proportion of debt on the nation's housing stock has hit a record high of 50 per cent, compared with a historical average of 30 per cent.

According to JPMorgan banking analyst Scott Manning, this has left households more vulnerable to rising interest rates, with first home buyers being among the most at risk.

''If mortgage rates approached their pre-financial crisis highs then first home owners will be committing about half of their post-tax income to interest servicing,'' Mr Manning said.

Figures compiled by Fujitsu Consulting show first home buyers are typically borrowing about $280,000, which matches established borrowers. However, first home buyers are borrowing more as a proportion of their income.